Well here we are: another Christmas beckons.
A lot of us at Southbank Investment Research will be heading back home next week to spend Christmas with friends and family – myself included. But don’t worry – we’ve lined up plenty of content to keep you entertained over the holidays.
Our 20/20 Visions series begins today. These are videos and written interviews with our editors of what they expect from next year (and the 2020s as a decade) for investors. Its investment predictions galore – you’ll be hearing from our founder, our tech and energy specialists, myself, our publisher and more speculate on what’s in store for markets, geopolitics and more. Â
For the video interviews, we’ve let our camera crew go nuts with our green screen, so you can expect some… “creative” backdrops to some of the content. I’ll also be bringing my Kalashnikov to drive home a point.
But to start us off is an interview my colleague Nickolai had with our newest editor, Gerard Pontonnier. Gerard is the biotech expert in charge of New Drug Speculator, our latest investment advisory, having spent his career deep inside the pharma industry and learning all its tricks.
He’s been an insider to every part of the long and expensive process required to bring a drug to market, and knows all the ins and outs to profiting from the science (and regulatory hurdles) of new meds. I’ll let him deliver all the details (though sadly we had to redact some of the info, in CIA fashion).
In the meantime, I wish you all a very merry Christmas, and a happy New Year. See you in 2020!
All the best,
Boaz Shoshan
Editor, Capital & Conflict
20/20 Visions
a Q&A with Gerard Pontonnier
Gerard, what would be your headline to sum up 2019?
2019, a fantastic year for biopharma stocks in delivering innovative therapies
This amazing year, the biopharma sector saw a strong wave of innovativedrugs getting approvals from the US’s Food and Drugs Administration (FDA) and the EU’s European Medicines Agency (EMA) regulators. In particular, drug developers started to deliver effective treatments for numerous genetic diseases which had unmet medical needs.
Heading into 2020, I remain very bullish on biopharma stock-picking thanks to strong fundamentals and clear opportunities for outperforming markets.
You have 100 words to prepare investors for 2020 – what are they?
As my subscribers will tell you, it’s difficult for me to use only 100 words!
December is a great time to look into our New Drug Speculator crystal ball for profitable investment opportunities to prepare investors for 2020.
Meteorologists accurately predict a five-day weather forecast about 90% of the time. Of course, there is a big difference between predicting the weather five days out and predicting what will take place in the biopharma industry in 2020 and beyond.
This last couple of years has featured record levels of capital raising with over 100 IPOs and 270 follow-ons that drummed up tens of billions in cash. 2018 and 2019 saw some of the largest biotech IPOs in world history!
At the same time, the number of public small and mid-sized biotechs has doubled in the past decade. From 2010 to present, these companies have seen their typical market values double, R&D budgets triple and cash burn rates quadruple. The race in oncology is part of this trend.
Biopharma’s impressive market performance has made that level of investment possible. NBI, Nasdaq’s reference index for Biotech stocks, outperformed the S&P 500 by 30% since the market bottomed out in early 2009.
The question is whether this is sustainable if markets and macro-economic conditions get more stringent and political uncertainty gets more obvious, forcing companies to tighten their belts to ride out 2020.
The US election may impact the biopharma sector regarding drug pricing thanks to Medicare reform. But M&As and the innovation trend are likely to continue.
The challenge for today’s biotech investors is to separate short-term noise from long-term trends. The most successful players in the drug development sector are not short-term traders who buy or sell on a whim. The successful people who become truly wealthy in biopharma are long term investors who learn from research data and stick to their guns, even when the sector has fallen out of favour.
That’s exactly what we do in New Drug Speculator.
What was your most successful prediction of 2019?
[Note: names of the recommendations redacted as all are active recommendations.]
My most successful recommendation initiated on 20 November was […..…], a drug developer with a strong pipeline of gene therapies that slow or stop the underlying disease process for patients with Parkinson’s disease and other neurodegenerative disorders.
Over the next decade, the Parkinson’s disease arena will be driven by combining innovations in drug delivery systems and first-in-class new drugs that are focused on neuronal degenerative mechanisms.
It’s no exaggeration to say that gene therapy like […..…]’s viral vector approach could change the game.
Since our recommendation, […..…] has already gained 28% (as of 13/12/2019).
What surprised you most in 2019?
Merger and acquisition (M&A) momentum is still active in drug development these last few years. The deals’ sizes always surprise me. And it was bigger than ever in 2019.
The first three quarters of 2019 have seen over 240 M&A deals combining a total value of $195 billion.
That’s impressive!
But more than 70% of that combined value ($137 billion) came from just two deals: Bristol-Myers Squibb on 20 November completed its $74 billion acquisition of Celgene, and AbbVie agreed to buy Allergan for $63 billion under a deal set to close in early 2020.
There’s always going to be a baseline of M&As as it’s part of doing business in the biopharma industry. But there’s nothing to suggest that the trend is going to decrease in 2020.
What is the biggest opportunity of 2020?
The biggest opportunity in the biopharma sector for the next couple of years will be using genetics to improve therapeutics.
The gene therapy space has really heated up since the US and EU approval of Luxturna from Spark Therapeutics (recently acquired by Roche) to treat inherited retinal disease last year. Over these last years, a lot more companies worked in the gene therapy area with spectacular results.
Gene therapy in the brain is an exciting area that I’ve heard more and more about and discussed with scientists. With the initial failure of the Alzheimer’s drug from Biogen, we see the needs of different approaches in neuroscience.
Understanding the genome and how researchers can use that knowledge to make better therapies is extremely interesting as well. If we can use that to develop more targeted drugs, I think that can be helpful to cure numerous genetic disorders beyond pure gene therapy.
In 2018, the first-ever […..…], from […..…], currently our best performing recommendation, was approved in the US and EU. Other promising drug candidates are emerging from biopharma companies like […..…] in Parkinson’s disease, another recent recommendation.
What is the biggest threat of 2020?
In my opinion, it could come from drug pricing and healthcare reform, with impacts on not only US companies but more globally on the pharma industry.
In the run-up to the US election, we can expect proposals to reduce overall drug and healthcare costs. These proposals, whether realistic or not, will roil markets and could have a negative effect on the financing and valuation of biopharma companies.
2020 will be an election year and at the moment nothing is a hotter topic on the debate stage than healthcare in the US. How much should it cost? Who should pay for it? Should free healthcare be a right guaranteed by the government?
The US/China “tariff war” and other forms of “nationalism” could also impact biopharma in 2020 and beyond.
The R&D for biopharma needs collaborative efforts, involving individuals across numerous nations. While protecting trade secrets can be very important, the US/China tariff war could potentially disrupt joint R&D efforts by instilling regulations that hinder the ability to share important resources.
Improving the livelihood of patients should be a global movement, and it is possible that countries following a more independent track could disrupt this movement of therapeutic R&D. This is an important trend to observe over the next few years as our knowledge and capabilities in healthcare continue to expand.
Though biopharma has been incentivised (particularly in the US) by intellectual property (IP) laws and novel regulatory pathways to develop these new and innovative therapeutics, there is still an enormous financial risk, which tends to be overlooked by the media, politicians, and society as a whole. While the true value of the biopharma industry comes from bringing new medicines to patients, companies still need to achieve a positive return on investment.
This is why, in the US, as in the EU, there is a limited and defined period of branded exclusivity before allowing generic competition. With more than 85% of current US prescriptions using generic versions of branded drugs, we can see the value biopharma innovation brings to society.
But without the branded products to start with, there would be no generics, and those saved, extended, and improved patient lives would not have occurred. That’s why, before cutting budgets and changing rules, governments should keep in mind the welfare of patients and medical innovation.
Which newsletter should Southbank Investment Research launch in 2020?
As a former sell-side analyst covering both biopharma and medtech sectors, and having been a corporate analyst for numerous successful initial public offerings (IPOs) on Euronext, I consider the medical device arena to be a very innovative segment to have a look at. Both in the US and European stockmarkets. Strength for medical stocks comes from the ageing population and innovation among device makers: there are many success stories in imaging, surgery and robotics.
Medtech stocks have long been a favourite for growth investors due to attractive fundamentals of long-term growth in a relatively defensive industry. With aggressive M&A potentials, the small/midcaps segment is the “gasoline” for bigger players like Stryker or Medtronic. It’s not hard to see why this segment of stocks tends to outperform the global markets.
So, that’s why I would be happy to introduce you to a Speculative Medtech newsletter in 2020, with bullish investment ideas listed on the Nasdaq and Euronext.
Will next year be a good year for New Drug Speculator?
As a former sell-side analyst and trader, my stock-picking approach will include a high risk-mitigation strategy. By selecting drug development companies with a well-balanced pipeline (early- and late-stage drug candidates) and enough cash in bank to progress in clinicals, you reduce your chances of losses.
As I previously discussed, genetic diseases will be the leading segment in our investment strategy, with a strong focus on Nasdaq stocks. Nasdaq is the leading market to invest in biopharma stocks, taking advantage of its liquidity, volatility and IPO frequency.
What are you most worried about?
Pricing regulations may drastically impact the global biopharma industry. In the US, the general state of chaos and the impeachment inquiry is absorbing a lot of bandwidth from legislators, which almost certainly means we will not see significant healthcare reform and any associated drug-pricing compression in 2020.
It is important to weigh in the context of elections. We’ve already seen a chilling effect on biotech indices, for example, driven by conversations on driving lower prescription drug prices.
Similarly, EU political uncertainties could have a negative impact on our biopharma industry. “Brexit” or “Not Brexit” is also a big question and I haven’t got the answer!
What are you optimistic about?
Biopharma companies are at the forefront of the evolution taking place in the healthcare industry. And as a result, large pharmaceutical companies are increasingly looking for new acquisitions to fulfil their pipelines.
Recent announcements like Novartis’ acquisition of The Medicines Company illustrate big pharma’s appetite to sustain revenue growth. Innovative drug acquisitions are a way for legacy pharmaceutical firms to expand. Specifically, smaller drug developers with drugs nearing market are attractive for big pharmaceutical players.
The increased focus on creating a constructive dialogue and guidance between the FDA regulators, EMA regulators and biopharma industry players could be the most significant trend in the coming years. Regulatory agencies are helping to facilitate this by challenging the industry to do the correct type of clinical trial design and subsequently shortened the time to market.
Over the next decade, I anticipate the biopharma industry will be actively pursuing treatments that address the cellular and molecular cause of disease, rather than advancing therapies that merely treat the symptoms.
Although we’ve already seen incredible strides over the past 20 years in terms of what we are capable of achieving, only three viral vector-based gene therapy products have been approved by the FDA thus far…
New hopes blossomed in 2019 with a few approvals for rare diseases.
For perspective, there are between 5,000 and 7,000 rare genetic diseases that affect up to 10% of the worldwide population. This means that significant progress is still required to address 95% of the rare diseases currently lacking effective therapies.
For too long, these “genetic” patients have gone without any treatment options, and it is critical that drug development companies continue to work to address these devastating, life-threatening genetic disorders.
Of the predictions you’ve made, which are you most optimistic/confident about?
[…..…] is one of my favourite stock recommendations.
[…..…] is the leading gene-editing company focused on developing transformative gene-based medicines for serious diseases using its proprietary and revolutionary […..…] platform.
The latest rush on the Nasdaq is in part due to some great trial results announced on 19 November. These were the clinical results on the treatment of the first two patients with severe hemoglobinopathies, who were treated with […..…] gene-editing therapy as a part of ongoing Phase 1/2 clinical trials.
Being on the move since mid-October, it took the price over 50% above our original purchase price. I am still confident that good news will come from the ongoing trials in 2020.
Enjoy your Xmas holidays!
Category: Market updates